Market order vs. limit order: what's the difference?

Market order vs. limit order: what's the difference?

You've done the research. You found the stock or ETF you want. You tap Buy — and then you see it: Market or Limit? This is one of the first real decisions you'll make as an investor, and it's much simpler than it sounds. It comes down to what matters more to you in that moment: speed or price.

What is a market order?

A market order tells your broker to buy or sell right away at the best price available. It's the fastest way to get in or out of a position.

The catch is that you don't set the price. The price you get can be different from the last price you saw on screen. That gap is usually small for widely traded stocks and ETFs during normal market hours. It can be bigger when prices are moving quickly or when few shares are trading.

Use it when: Getting the trade done matters more to you than the exact price.

What is a limit order?

A limit order lets you name your price.
Limit order is an order that lets you set the exact price you are willing to pay or accept. A buy limit means: buy only at this.

• A buy limit says: buy only at this price or lower.
• A sell limit means: sell only at this price or higher. If the market never reaches your price, the order will not execute. You will keep your cash (or your shares), but you may miss the trade entirely. Use it when getting your desired price matters more to you than getting the trade done immediately.

If the market never reaches your price, the order doesn't fill. You keep your cash (or your shares), and you may miss the trade entirely.

Use it when: the price matters more to you than whether the trade happens right now.

A simple example (hypothetical)

Say a share is trading at about $20.00. (A hypothetical price, for illustration only.)

Your order - what can happen:

1) Market buy - It fills right away at the best available price. That might be $20.00, $20.03 or $19.98.

2) Limit buy at $19.50 - It fills only if the price drops to $19.50 or lower. If it never does, nothing is bought.

3) Limit buy at $20.00 - It fills at $20.00 or lower if shares are available at that price.

This example is for illustration only. It isn't based on any real investment and doesn't predict what any price will do.

Market vs. limit at a glance

Market order

• What you control: Speed
• Will it fill? Usually executes during market hours, subject to market conditions and available liquidity
• Price you get: The best available price when the order executes.
• Main risk: You may pay more or receive less than you expected because the price can change before execution

Limit order

• What you control: Price.
• Will it fill? Only if the market reaches your limit price and there are sufficient matching orders. Execution is not guaranteed.
• Price you get: Your limit price or better.
• Main risk: You may miss the trade if the market never reaches your limit price.

How long does a limit order last?

Your limit order doesn't stay open forever you choose how long it lasts. A Day Order expires at the end of the trading day if it doesn't fill. If your price isn't hit by market close, the order is canceled automatically. A Good-'Til-Canceled (GTC) Order stays open until it fills or you cancel it yourself. Most brokers keep a GTC order open for 60 to 90 days, but it varies by broker.

Which should you use?

There's no single right answer. Ask yourself one question: what matters more for this trade, speed or price?

• Buying a broad ETF you plan to hold for years? Many people care more about getting started than about a few cents.
• Buying something whose price swings a lot? A limit order helps you avoid paying more than you meant to.
• Selling? A sell limit lets you set the lowest price you'll accept.

Neither order type protects you from the investment itself going down in value. They only change how your trade is placed. New to the difference between a single stock and a fund? Read - ETFs vs. Mutual Funds: Which Gives You More Control?

How Vantar helps

With Vantar Trade, you decide how your order is placed. Pick a market order when speed matters, or set a limit when price matters. Trade. You call the shots.